A Wiley publisher offers you the rights to produce a romantic movie based on a novel about to be published – cost is £5m Previous experience indicates the novel has a 50/50 chance of success or failure If a success the movie will earn a PV of £75m If a flop the movie will make a loss of £75m (development & promotion) What is the traditional NPV of this project? What would be the NPV of this project with the use of real options? A Wiley publisher offers you the rights to produce a romantic movie based on a novel about to be published – cost is £5m Previous experience indicates the novel has a 50/50 chance of success

A Wiley publisher offers you the rights to produce a romantic movie based on a novel about to be published – cost is £5m Previous experience indicates the novel has a 50/50 chance of success or failure If a success the movie will earn a PV of £75m If a flop the movie will make a loss of £75m (development & promotion) What is the traditional NPV of this project? What would be the NPV of this project with the use of real options? A Wiley publisher offers you the rights to produce a romantic movie based on a novel about to be published – cost is £5m Previous experience indicates the novel has a 50/50 chance of success

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter1: Introduction To Finance For Entrepreneurs

Section: Chapter Questions

Problem 5EP

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Suppose that you could invest in the following projects but have only $29,700 to invest. How would you make your decision and in which projects would you invest? Project Cost NPV A $ 7,850 $ 3,200 B 11,060 6,460 C 9,200 4,150 D 6,540 3,090 You should invest in which of the following options? A & B only B & C only B & D only A, B, & C B, C & D
A decision maker faces an uncertain venture where he/she may earn $10.000 (with a probability p) or nothing. Following mutually exclusive options to this uncertain venture are listed below. The decision maker's statements are given following each option: • A certain venture that will bring $3.000 at the end of one year. "I will invest my money to this certain venture unless there's a 50% chance of winning the $10.000" • A certain venture that will bring $5.000 at the end of one year. "I will invest my money to this certain venture unless there's a 75% chance of winning the $10.000" • A certain venture that will bring $7.000 at the end of one year. "1 will invest my money to this certain venture unless there's a 88% chance of winning the $10.000" • A certain venture that will bring $9.000 at the end of one year. "1 will invest my money to this certain venture unless there's a 97% chance of winning the $10.000" On the other hand if the utility values for $10.000 and $0 are 1 and 0.1…
Question What is primary and secondary market? An IPO is undertaken on primary or secondary market? What is the essential job of an investment banker? Why a stock exchange is called an auction market? What are the five basis principles of finance? Your company is considering choosing one of the two projects: Project Gold and Project Diamond. Each project will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 9%. The cash flows of the two projects are provided below. Gold Diamond Cost $485 000 $520 000 Future Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 105 850 153 250 225 650 245 000 250 350 117 050 162 400 275 500 255 000 260 000 Required: Identify which project should your company accept based on Discounted Payback Period method if the payback criterion is maximum of 2.5 years.
Suppose that you could invest in the following projects but have only $29,700 to invest. How would you make your decision and in which projects would you invest? Project Cost A $7,850 B C D 11,060 9,200 6,540 NPV $3,200 6,460 4,150 3,090 You should invest in project(s)
There are two project options to choose from and decide a better option for the company based on the initial investment (cost to buy and install) and the savings (cash flow) that will result from each option as shown in the table below.• Project option A is a package that will cost £10,000 to buy and instal.• Project option B is a package that will cost £6,000 to buy and install. Year Option A Option B 0 -10,000 -6000 1 2,500 2000 2 2,500 2000 3 2,500 2000 4 £2,500 1000 5 2,500 1000 6 2,500 750 7 2,500 750 8 2,500 500 a. Which option should be chosen and why based on the Investment appraisal payback period method.
Suppose that you could invest in the following projects but have only $24,480 to invest. Which projects would you choose? Project Cost NPV w $ 7,970 $ 3,000 x 10,990 7,530 y 8,500 4,280 z 6,750 3,890 You should invest in project(s)?
SNA company management is considering two competing investment Projects A and B. Year Project A Project B Initial Investment 1000 1000 1 275 300 2 275 300 3 275 300 4 275 300 5 275 300 DISCOUNT RATE 3.15% help management to choose the most desirable Project .You must use each technique from 1 to 4 and get the answer? 1)Payback Period Technique.2) Discounted Payback Period Technique.3) Net Present Value Technique4) Profitability Index Technique.
Real Options—the Option to Abandon a Project You and several of your classmates havejust graduated from college and are evaluating various investment opportunities, including a startupcompany that would produce high-quality jackets embroidered with a college logo. If demand forthis customized product is high, you expect to sell approximately 100,000 units per year, at a priceper unit of $80. On the other hand, because of stiff competition in the field, a pessimistic estimateis that demand for your new product would be only 40,000 units per year at a selling price of$70. Anticipated variable costs per jacket amount to $40. Capacity-related (i.e., short-term fixed)costs other than the cost of manufacturing equipment are thought to be negligible. Manufacturingequipment (with a 10-year life, a cost of $12 million, and a zero salvage value) would have to bepurchased as part of this project. Assume that, for income tax purposes, your company will usestraight-line depreciation over the life…
YOU ARE A FINANCIAL ANALYST FOR A COMPANY THAT IS CONSIDERING A NEW PROJECT. IF THE PROJECT IS ACCEPTED, IT WILL USE A FRACTION OF A STORAGE FACILITY THAT THE COMPANY ALREADY OWNS BUT CURRENTLY DOES NOT USE. THE PROJECT IS EXPECTED TO LAST 10 YEARS, AND THE ANNUAL DISCOUNT RATE IS 10% (COMPOUNDED ANNUALLY). YOU RESEARCH THE POSSIBILITIES, AND FIND THAT THE ENTIRE STORAGE FACILITY CAN BE SOLD FOR €100,000 AND A SMALLER (BUT BIG ENOUGH) FACILITY CAN BE ACQUIRED FOR €40,000. THE BOOK VALUE OF THE EXISTING FACILITY IS €60,000, AND BOTH THE EXISITING AND THE NEW FACILITIES (IF IT IS ACQUIRED) WOULD BE DEPRECIATED STRAIGHT LINE OVER 10 YEARS (DOWN TO A ZERO BOOK VALUE). THE CORPORATE TAX RATE IS 40%. DISCUSS WHAT IS THE OPPORTUNITY COST OF USING THE EXISTING STORAGE CAPACITY?
MCS Corporation is considering two possible investments and needs your help in determining which will be the better financial option. Perform the necessary calculations using Microsoft Excel so that maximum precision can be obtained. (Unless indicated otherwise, enter your answers rounded to the nearest whole dollar/input code: 0). Investment Option "North" This potential investment is a little more risky and longer term, so it has a minimum rate of return of 17.60%. This investment would require an initial outlay of cash to purchase a piece of equipment for $131,000, and at the end of the 8- year life of this investment is expected to have a salvage value of $39,300. For each year of this investment, net annual cash inflows are expected to be $29,500. 1. How much is the present value of the purchase of equipment? 2. How much is the present value of the salvage value? 3. How much is the present value of the annual cash inflows? 4. How much is the Net Present Value? 5. What is the value…
The Weiland Computer Corporation is trying to choose between the following mutually exclusive design projects, P1 and P2: Year 0 1 2 3 Cash flows (P1) -$53,000 27,000 27,000 27,000 Cash flow (P2) -$16,000 9,100 9,100 9,100 If the discount rate is 10 percent and the company applies the profitability index (PI) decision rule, which project should the firm accept? If the firm applies the Net Present Value (NPV) decision rule, which project should it take? Are your answers in (a) and (b) different? Explain why?
Imagine that you are a financial investor (able to offer a mixture of equity and debt) and you are asked to invest in a project to expand a section of the circular motorway around the town of Roermond. The project developer is looking to provide you with returns that are commensurate to the investment and risks you take. He offers you the following options: Option 1: You stand to make 7% on your investment (a mixture of debt and equity) which will be collected from toll charges to road users; Option 2: You can make 5% on your investment (a mixture of debt and equity) and then the contracting authority will pay a capacity payment based on an availability contract. What could be the reason for the difference in the two offered returns?